MIU - Issue 142 - October 2022

Reports on practices in wholesale financial markets  

We’ve released two reports on better and poorer practices in wholesale financial markets and encourage all participants in these markets to benchmark themselves against the practices.  

Report 741 Conduct risk in wholesale fixed income markets (REP 741) and Report 742 Managing conflicts of interest in wholesale financial markets (REP 742) summarise our surveillance activities and complement existing ASIC regulatory guidance by providing practical examples of practices observed.  

REP 741 outlines key conduct risks in fixed income markets, including misleading or deceptive conduct, insider trading and market manipulation. It also summarises our observations of differences in the maturity of participants’ management of these risks. Some participants had comprehensive monitoring and surveillance functions, which contrasted with others where we observed gaps for some trading activity and communication channels. 

REP 742 discusses differing levels of sophistication we observed in the management of conflicts of interest. Better practices involved proactive and systematic identification, mitigation, and management of conflicts of interest. Poorer practices were ad hoc, manual, and reflected a lack of prioritisation by participants.  

High standards of conduct and oversight, such as the better practices in the reports, strengthen market integrity and confidence in Australia’s wholesale financial markets. 

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Court finds Austal and former CEO breached continuous disclosure laws 

The Federal Court has ordered Austal Limited (Austal) to pay a penalty of $650,000 after finding the ship-building company contravened continuous disclosure laws. 

The Court also found Austal’s former CEO, David Singleton, was knowingly involved in the disclosure failures. Mr Singleton has been ordered to pay a penalty of $50,000.  

Austal and Mr Singleton admitted, and the Court found, that between 16 June 2016 to 4 July 2016, Austal failed to disclose a likely profit writeback of at least US$90 million for its FY2016. The writeback would generate a loss of at least US$40 million for the company. The writeback also meant previous profit guidance from Austal (EBIT margin) was no longer reliable and should have been withdrawn. 

The Court found that both Austal and Mr Singleton were aware of the information about Austal’s FY2016 earnings from 16 June 2016 and that the information was material to investors. The Court also found that Austal’s and Mr Singleton’s continuous disclosure contraventions were serious and not the result of mere carelessness, inadvertence or inattention.  

Austal shares totalling $23 million were traded between 16 June and 30 June 2016. 

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Vigilance when verifying and managing customers’ personal information 

Market intermediaries should exercise increased vigilance when verifying and managing customers’ personal information, following recent cyberattacks.  

There is a risk that stolen information may be used to commit identity theft and fraud. Currently, it appears that the Optus data breach is limited to retail customers (and potentially small businesses) while enterprise accounts do not appear to be impacted. Details of the Medibank cyberattack are still unfolding. 

There is heightened risk of fraud with digital client on-boarding and changes to customer account details, such as HINs, payment instructions and communication channels (e.g. email addresses, postal addresses and phone numbers). 

Information sheet 237 Protecting against share sale fraud includes tips on how to protect against share sale fraud, such as the use of two-factor authentication to verify a client’s identity and comparing the geographic location of an IP address with the address of a prospective client.  

Market intermediaries can support customers to limit their risk of fraud by directing them to reputable sources such as the Australian Cyber Security Centre (ACSC), Moneysmart and the Office of the Australian Information Commissioner. 

If you suspect that a person (or their agent) is not who they claim to be, you must submit a suspicious matter report to AUSTRAC.  

We also remind market intermediaries of the importance of regularly checking their cyber security defences. The ACSC provides practical guidance on improving cyber security, as well as the ability to subscribe to alerts about recent online threats and how they can be managed. 

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Updated and expanded remediation guidance 

We’ve published updated and expanded remediation guidance to help firms remediate customer losses quickly and effectively.  

Regulatory Guide 277 Consumer remediation (RG 277) is underpinned by licensees’ legal obligation to operate efficiently, honestly and fairly, and it embodies our practical experience from monitoring remediations.  

We’ve responded to industry requests for advice and clear guidance on remediations, drawing on six years of oversight experience.  

RG 277 is comprehensive and allows licensees to scale and tailor their remediations to fit the circumstances. RG 277 (among other things): 

  • clarifies the nine principles for conducting a remediation, which will help licensees comply with their obligations and conduct remediations efficiently, honestly and fairly 
  • provides 28 examples to assist in the practical application of the guide 
  • introduces guidance on the use of assumptions 
  • introduces updated product specific-guidance on possible monetary and non-monetary remedies 
  • updates guidance on the use of a low-value compensation threshold and payment channels 
  • introduces guidance on what to do if a consumer cannot be contacted or paid. 

RG 277 also helps licensees understand how remediation interacts with other obligations (for example, internal dispute resolution and other general licensing obligations). 

In addition to RG 277, we’ve released an updated version of Making it right: How to run a consumer-centred remediation, a best practice field guide that helps licensees with the day-to-day design and execution of consumer-centred remediations.  

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ASIC Annual Forum 2022 

The ASIC Annual Forum (in Sydney) is back for the first time since 2019, on 3–4 November 2022.  

The Annual Forum is ASIC’s premier event for the financial services and markets sectors and brings together regulators, industry and thought leaders from Australia and abroad. The theme for this year’s event is New Directions. 

Join us in Sydney as we explore how the finance sector has evolved in recent years. Hear from over 40 prominent speakers discussing key issues, trends, and essential topics such as superannuation, wholesale market conditions, climate change, crypto, AI and data, enforcement priorities and the regulatory toolkit and more. 

The Annual Forum and Annual Dinner will be held at the Hilton Sydney, with tickets to the Annual Dinner already sold out.  

Registrations close on 27 October 2022, so act now to secure your ticket. For more information and to register, visit ASIC Annual Forum 2022. 

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Last updated: 26/10/2022 12:00